Prime Minister Tony Blair has made a robust defence of government plans which may result in the closure of hundreds of post offices in rural areas.

Speaking during prime minister's question time, Mr Blair said it was essential that the Post Office faces up to the "challenges of modernisation".

Post Office closures

1992/93: 100

1993/94: 59

1994/95: 156

1995/96: 65

1996/97: 116

1997/98: 238

1998/99: 232

There are fears that government proposals to pay benefits and pensions directly into claimant's bank accounts could dramatically reduce business for post offices which normally handle such transactions.

Mr Blair was speaking after a petition bearing the signatures of three million protestors against the changes was handed in to Downing Street.

The prime minister told MPs that the process of modernisation was essential as half a million people decided to opt for direct payment each year, adding that the changes could save up to £600m a year.

He told MPs: "No one will be prevented from drawing their benefits in cash at the post office if they want."

But Tory leader William Hague rounded on the prime minister, saying his words amounted to nothing more than "meaningless assurances".

Referring to the last Conservative government, Mr Hague said: "We had a policy to save post offices, you have a policy to close post offices."

'Clear demonstration'

The prime minister said the government would work with the Post Office to both modernise it and look towards finding new services that will enable it to prosper.

Mr Blair also criticised the Tory policy of full privatisation for the Post Office.

After handing in the sackloads of protests, Colin Baker of the National Federation of Subpostmasters said: "The important issue is we are trying to save local offices for those who want to use them.

"This petition is a clear demonstration, completely unsolicited, of the way people feel about their local offices."

Demonstrators gather at Downing Street

The campaigners, who held a rally in London say many people on benefits do not have bank accounts while many people in rural areas do not have access to banking facilities.

'Don't want handouts'

And they want ministers to come up with a post office-based way of paying benefits.

But the government says many post offices will have reached agreements with banks by the time benefits are paid straight into accounts in 2003.

In a Commons debate on the issue called by the Conservatives, Tory trade and industry spokeswoman Angela Browning said postmasters and postmistresses "didn't want handouts, they want to do business.

"They want to plan for the future. They need the Government to behave themselves in a more business-like manner, to negotiate, to make decisions now -
not in three years time."

She said Trade and Industry Secretary Stephen Byers would be receiving thousands of birthday cards on Thursday - his 47th birthday - "from every sub post office asking you to think again".

'Real concerns'

Mr Byers confirmed the government planned to introduce powers to pay a subsidy to the post office network where necessary once Automatic Credit Transfer comes in from 2003.

He said: "We do recognise the real concerns that many people throughout the country have about continued local access to postal services, particularly in rural areas and also in some of our inner city areas as well.

"The clause that I intend to introduce next week provides an additional safeguard in the Bill to provide financial assistance if it proves necessary to do so.

Liberal Democrat trade and industry spokesman Vincent Cable said there was a "crisis of confidence" among sub postmasters and mistresses.

He said the government needed to give "a clear, unambiguous guarantee and undertaking to the preservation of the network".

The Tory Party's motion expressing concern about the future of sub-post offices was rejected by 364 votes to 139.